Cash on the sidelines

[SamLau]

Heya all,

Watching TV and listening to the financial commentators. They keep saying
"There is still plenty of cash on the sidelines". Im assuming this means people are waiting for the market to surge before they jump in.

But... How do they know this? From the lack of recent trading volume or what other data or statistic would give them this insight.

Thanks in advance

 

[skc]

Heya all,

Watching TV and listening to the financial commentators. They keep saying
"There is still plenty of cash on the sidelines". Im assuming this means people are waiting for the market to surge before they jump in.

But... How do they know this? From the lack of recent trading volume or what other data or statistic would give them this insight.

Thanks in advance

Super funds and other fund managers may have to report the proportion of cash they are holding. So one can collate that and see how that compares to historical norms.

Personal saving rates and bank deposits are also on the rise - search Australian Bereau of Stats and you may find some hard data.

This however is interesting reading...

http://seekingalpha.com/article/138360-the-fallacy-of-cash-on-the-sidelines

 

[dhukka]

Heya all,

Watching TV and listening to the financial commentators. They keep saying
"There is still plenty of cash on the sidelines". Im assuming this means people are waiting for the market to surge before they jump in.

But... How do they know this? From the lack of recent trading volume or what other data or statistic would give them this insight.

Thanks in advance

One of the greatest fallacies in stock market lore is the notion of "cash on the sidelines"

There's No Such Thing as Idle Cash on the Sidelines

One of the hurdles in thinking properly about the financial markets is to understand the idea of “equilibrium” – that all securities issued must be held; that savings must equal investment; that every share bought by someone must be sold by someone else.

… and that there's no such thing as “idle cash on the sidelines.”

That last one isn't easy to grasp. After all, you can look at your own brokerage account and say – “look right there at that cash balance. There it is, on the sidelines, just waiting for me to put it into the market.”

But if you look more closely, what you really have is an IOU. It might be a very liquid one, like a money market fund that holds T-bills and commercial paper, but it's still an IOU. See, your “cash on the sidelines” isn't sitting there idle, waiting to be put to work. The fact is that it has already been put to work.

And when you go to put your “cash on the sidelines” to work, what really happens is that your money market securities (T-bills, commercial paper, etc) now have to be sold to someone else. And at that moment, the cash on the sidelines that you had suddenly becomes somebody else's cash on the sidelines. And that same amount of cash on the sidelines will continue to exist until the borrowers pay it off.

The whole article is well worth a read.

 

[GumbyLearner]

One of the greatest fallacies in stock market lore is the notion of "cash on the sidelines"



The whole article is well worth a read.

Totally agree.

Ask any underwriter at any large merchant bank? Are you in cash?

 

[doctorj]

Doesn't 'cash on the sidelines' refer to the risk profile of the investment? Is cash is no longer 'on the sidelines' when it's at risk greater than a govt bond or perhaps Investment grade bond?

 

[GumbyLearner]

Doesn't 'cash on the sidelines' refer to the risk profile of the investment? Is cash is no longer 'on the sidelines' when it's at risk greater than a govt bond or perhaps Investment grade bond?

Run to Government Bonds? where Norway? They might be ok?

 

[skc]

Doesn't 'cash on the sidelines' refer to the risk profile of the investment? Is cash is no longer 'on the sidelines' when it's at risk greater than a govt bond or perhaps Investment grade bond?

Totally agree. Cash on the "sideline" is just saying. It actually refers to cash "not current in stock or risky assets". In that sense there are plenty of cash on the sideline.

From a single market perspective, cash on the sideline can flood in and cause the market to rise... the Taiwan exchange publishes how much foreign money flows into the local market every day.

On the global level, however, the article is correct in saying that "equalibrium" must be maintained and that each seller of money market bonds (cash) must be met with a buyer.

Another interesting point is that it doesn't take $10B to raise the market by $10B... afterall market cap is nothing more than the last marginal price paid for the stock.

 

[Trembling Hand]

One of the greatest fallacies in stock market lore is the notion of "cash on the sidelines"

So Dhukka you don't subscribe to supply and demand for a limited resource? Prices just fluctuate by some mystical response to the moon rather than funds seeking or retreating from risk??